New Grad Financial Blueprint

By Andrew Baker, PA-C, MBA

Graduating from PA school is an amazing accomplishment! As a new grad, your first year as a PA comes with a steep learning curve, regardless of your specialty. If you have a clinical question in your first year, you can turn to your colleagues and your collaborating physician. But where do you turn if you have a financial question?

PA school does not provide PAs with training on personal finance topics. However, PAs need to make decisions regarding taxes, insurance, loan repayment, retirement, and more throughout their career. In your first year of being a PA-C, you will be:

  • Managing a $100,000+ salary
  • Paying off $100,000+ school loans and other debt
  • Choosing retirement and investment accounts
  • Electing disability and life insurance
  • Exploring refinancing options

You can consider the following steps your “New Grad Financial Blueprint”:

#1. Get the right job

As a new graduate, you may have heard that you should “take the job that will teach you the most.” It may be tempting to prioritize salary over learning, but remember: you can outspend any income. No matter how much income you make, poor repeated spending habits will make it seem as if you don’t have enough.

Many new grads benefit from finding a job in an inexpensive city so that they can limit their expenses (i.e., rent) while they focus on learning. If you live in an expensive city, consider getting experience somewhere with a lower cost of living until you get a handle on your career.

It is important to understand all the terms of your employment contract and carefully consider the following financial benefits and costs before accepting a new job.

  • Health Insurance
  • Disability and life insurance
  • 401(k) and employer match
  • Paid holidays and vacation days
  • Weekend and holiday commitment
  • Proximity to your home (time driving and cost of gas)
  • Income
  • Bonuses
  • Loan repayment

#2. Formulate a Financial Plan

Prior to making any major life change, it is important to plan. However, your financial future is a fluid discussion. Your plans will change over time as your priorities change.

Financial goals can be broken down into three categories:

  • Short Term: 0-1 year(s)
  • Intermediate Term: 1-5 years
  • Long Term: 5+ years

Planning for your financial future can be overwhelming. To start, think about how the following expenses and milestones fit into your short, intermediate, and long-term goals:

  • Purchasing a vehicle
  • Paying off debt (credit card, auto, etc.)
  • Purchasing a home
  • Paying off your mortgage
  • Taking a vacation
  • Paying off your student loans
  • Getting married
  • Having children
  • Retirement
  • Home renovations

#3. Become a Saver

Saving money looks different for everyone. Whether you want to purchase your next vehicle with cash or you are merely saving for an upcoming vacation, an appropriate savings rate is essential for long term financial success!

One of the best ways to save is creating a budget. Creating a budget is a cost-free way to save more easily and uncover unnecessary spending. There are a few straight forward options on how to operate a budget:

  • 50/30/20 rule
    • 50% take-home pay for necessities
    • 30% take-home pay for discretionary items
    • 20% saving or debt repayment
  • 80/20 rule
    • 20% take-home pay for savings or debt repayment
    • 80% for everything else
    • 80/20 rule à 70/30 à 60/40 (Strive for this!)

A budget isn’t forever but is essential for financial success!

#4. Debt Elimination

Personal finance is “personal.” Everyone has different personal bias and goals that influence their version of debt repayment. Many PAs were born in a family strapped with debt and truly do not know the first thing about debt repayment besides simply paying the minimum payment. But YOU are in control! Develop a strategic debt elimination strategy and never look back.

Besides paying minimum payments, how can you do it? Follow these simple steps to get started:

  1. Start a budget
  2. Understand your monthly fixed expenses and variable expenses
  3. Learn to avoid unnecessary spending
  4. Save three months of cash
  5. Contribute 3-6% into a retirement account (within the first few years of gradation, while you are repaying your debt)

Before you know it, six months go by and you are in complete control of your income, you have not accrued any additional debt, AND you have a full understanding of your personal debt situation. It is at that time you can implement your debt repayment strategy and begin watching it diminish in front of your eyes!

#5. Investing options

Don’t overcomplicate things. Any money you put into a retirement/investment account is better than nothing. The earlier money is put into an account, the more compound interest will accrue over time and the larger the sum of money will be when you withdraw during retirement.

The hard part is figuring out how much to invest while you still have student loans and other debt. There are varying mindsets when it comes to this topic. Ultimately, it is up to you. At the end of the day, you must be satisfied with how you are managing your money. But avoid listening to other friends, family, and colleagues when it comes to investing. Why? Because they probably don’t have a clue!

If you have more than $150,000 in school debt, hold off on investing until you have paid down some of it and can appropriately manage your PA salary. Keep in mind that some employers incentivize investment by matching their employee’s retirement contributions. In those cases, it is reasonable to invest in your employer sponsored retirement account to take advantage of your employer’s contribution.

After your first year of being a PA, in most cases, you should be saving at least a few thousand per year. Here is an example of investing for early career PAs:

  • Year 1: Pay down debt and do not invest
  • Year 2: Continue to pay down debt and invest up to company 401(k) match
  • Year 3: Continue to pay down debt and increase contributions to company 401(k)
  • Year 4: Continue to pay down debt and maximize contributions to company 401(k)
  • Year 5: Consider paying off student loans completely
  • Year 6 and beyond: Maximize 401(k) and diversify investments through Roth IRA, HSA, Brokerage accounts, Mutual Funds, ETFs, etc.

In a typical 30-year working history, if you follow these basic steps, you will be a multimillionaire by retirement! You won’t have to live a life worrying about making the next payment. Be the person others come to for help managing their money. Enjoy your career as a PA and don’t let constant debt stress burden you.

Andrew graduated from the University of Findlay PA Program in 2012. He graduated class President and with honors. During his career as a PA, Andrew has worked in numerous clinical settings. Currently, he works full time in Dermatology. Throughout his early career as a PA, Andrew coached and mentored many colleagues who were troubled financially. He ultimately obtained his Masters of Business Administration and started PA 4 Finance. He now works with pre-PAs, PA students and PAs of any career phase to help them avoid common financial mistakes and make the most out of their careers.